California is launching a program for workers whose employers don’t offer retirement plans — and the first business in the state to sign up is from Sacramento.
Lorenzo Harris and his wife own a janitorial services business in North Highlands. He says his company lacks the resources to offer its 45 workers a way to save for retirement, so when he learned about CalSavers — the state’s new savings program for life after work — he thought it might help recruit and retain talent.
“This is kind of unusual for us, I have to say,” Harris said on Tuesday during an event at City Hall. “We don’t normally support a government mandate." But he said CalSavers is unique and benefits both his company and workers.
Signed into law by Gov. Jerry Brown in 2016, the CalSavers program would require any California company with five or more workers to either offer a private retirement plan or sign up for the state’s independent-retirement account, or IRA. Employees would be automatically enrolled, but they’d have the right to opt out.
At the event on Tuesday, Treasurer John Chiang said it could help millions of employees in the state plan for life after work. “CalSavers will help facilitate the most sweeping and ambitious expansion of our retirement savings system since Social Security in 1935,” he said.
CalSavers is in a “pilot” phase now, although employers can sign up anytime. It will officially launch in July of next year, and mandatory deadlines for companies to register are staggered through 2022. The treasurer estimates it will impact nearly 200,000 California small businesses.
“Today is a new opportunity for 7.5 million hard-working Californians who for too long have been overlooked by Wall Street when it comes to enabling them to save for their own retirements,” said Yvonne Walker, a Sacramento-based union leader with the SEIU 1000 chapter and a CalSavers board member.
Proponents estimate that a 25 year old who starts putting money into the state IRA today could save up $350,000 by age 65, but did not specify a level of contribution to achieve this goal. The program was kickstarted with funding from the state and will operate on enrollee fees.
Mayor Darrell Steinberg spoke at the event and said that 5,800 employers would be eligible to participate in the program in Sacramento County. “That’s 110,000 workers who currently are not being offered easy access to retirement savings accounts today,” the mayor said. “Without this program, many of these people will wind up subsisting … totally on small social security checks,” which he says provide approximately $1,400 a month.
In the county, the largest sector of eligible workers are in the food and hospitality industry, with nearly 35,000 employees.
The Howard Jarvis Taxpayers Association filed a lawsuit against CalSavers and Chiang earlier this year. It argues that the state cannot require companies to enroll workers, because federal law prohibits involuntary participation in these programs.
The U.S. government had paved the way for programs such as CalSavers years ago under the Obama administration, when the Department of Labor ruled state-run IRAs were exempt from federal restrictions if they met certain criteria. But the Trump administration overturned that rule in 2017.
California is the third state in the nation to implement an automatic IRA retirement-savings program, joining Oregon and Illinois.